Apr 06, 2017 09:49 AM

China Services PMI Expands at Slowest Pace in Six Months: Caixin Survey

(Beijing) — China’s services activity expanded at the weakest pace in six months in March, a survey sponsored by Caixin showed on Thursday, adding to signs that growth momentum in the economy is slowing.

The Caixin China General Services Business Activity Index came in at 52.2 in March, down from 52.6 in February. Although the figure is still well above the 50 mark that divides expansion from contraction, it was the worst reading since September and the third straight monthly fall.

The decline follows a drop in the Caixin China General Manufacturing Purchasing Managers’ Index (PMI) to 51.2 last month from 51.7 in February. As a result, the Caixin China Composite Output Index, which covers both manufacturing and services, fell to 52.1 in March from 52.6 the previous month, the lowest number since September.

The readings of the Caixin indexes for March contrast with the official PMIs released by the National Bureau of Statistics (NBS), partly due to the types of companies included in the surveys. Its non-manufacturing PMI rose to 55.1 last month from 54.2 in February, the highest since May 2014, while the manufacturing PMI climbed to 51.8 from 51.6 in February, the strongest reading since April 2012.

The Caixin services PMI, which covers 400 companies and is compiled by international information and data analytics provider IHS Markit, showed the rate of expansion in new business softened in March, with the index showing the weakest reading since September. But the business expectations index was the second-highest in 13 months, reflecting a strong degree of confidence about the business outlook over the coming 12 months, according to the statement.

In a signal of accelerating inflationary pressure in the services sector, average input costs in March rose at the fastest pace in four years, mainly driven by higher salary payments, while the prices charged index rose to the highest level since August 2015.

Services industries, which include finance, real-estate sales and marketing, transportation and retailing have become an increasingly important part of the Chinese economy, reflecting its shift away from traditional heavy-industry manufacturing and exports. Last year, they accounted for 51.6% of the economy, 1.4 percentage points higher than in 2015, and contributed to nearly 60% of the growth in domestic gross product (GDP), according to the NBS. Services industries are more labor-intensive than manufacturing, and policymakers are counting on them to create more jobs.

Employment Softens

But the Caixin services PMI and the official non-manufacturing PMI both showed weaker readings in their employment sub-indexes. Although service sector employment continued to rise in March, extending the run of above-50 readings in the Caixin survey to seven months, the rate of payroll growth edged down to the lowest reading so far in 2017.

The employment sub-index in the NBS survey fell for the fourth straight month to 49.1 from 49.7 in February, and was the third straight sub-50 reading. The decline was particularly strong in the building sector, where the employment gauge declined by 6.3 points to 50.8, suggesting that the construction industry could be heading for a slowdown as the government steps up curbs on the real-estate market and investment growth eases.

The Chinese economy gained steam in the last three months of 2016, with official data showing GDP increasing at a stronger-than-expected pace of 6.8% year-on-year in the fourth quarter, the first acceleration in eight quarters, as private investment and real-estate development picked up.

The momentum continued into this year with key indicators such as fixed-asset investment and industrial output posting stronger expansion in the January-February period. China International Capital Corp analysts forecast first-quarter GDP growth will accelerate to 6.9% year-on-year, although they expect some moderation in the rates of growth of industrial output and fixed-asset investment in March.

But tighter controls on the property sales and mortgages to rein in surging prices, the end of the cycle of companies rebuilding inventories, the closure of so-called zombie companies, state-owned enterprise reform, and rising money-market interest rates may all weigh on growth in the second half of the year.

March data for industrial output and retail sales, and first-quarter data for investment and GDP will be released on April 17.

This report has been corrected to state that the economic growth rate in the fourth quarter of 2016 was the first acceleration in eight quarters, not 10, due to the latest government revision of historical data.

Contact reporter Fran Wang (

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